The legislation, passed 89-8 this morning, would make permanent the tax cuts for most households that expired at midnight, continue expanded unemployment benefits and delay automatic spending cuts for two months.

The measure emerged from an agreement yesterday between Vice President Joe Biden and Senate Minority Leader Mitch McConnell to stave off more than $600 billion in tax increases and federal spending cuts set to begin this month. The 157-page bill now moves to the House for consideration.

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"We all knew that if we did nothing, they'd be going up on everyone today," McConnell said before the vote. "We weren't going to let that happen."

After more than 17 months of bickering, Congress and President Barack Obama have yet to enact a deal to avert the budget changes known as the fiscal cliff. Even if an agreement clears both chambers of Congress in coming days, it would be more limited than what Obama and leaders of both parties sought.

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The deal passed early today by the Senate would extend income tax cuts for household income up to $450,000, with rates rising to 39.6 percent on income above that level. Expanded unemployment insurance would be continued through 2013.

House Speaker John Boehner issued a statement before the vote saying the House would consider the proposal if it passes the Senate. The House ended business until noon today without taking action on the budget.

"Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members -- and the American people -- have been able to review the legislation," Boehner, an Ohio Republican, said in the statement.

Deal ... US President Barack Obama speaks about the negotiations. Photo: Reuters

Taxpayers and investors won't see immediate effects of the changes, which would accumulate over a matter of months. By acting early this year, Congress could reverse the tax and spending changes.

Boehner "has said all along that he was waiting for the Senate to act," said Senate Majority Leader Harry Reid, a Nevada Democrat. "Now I hope for America that he will allow the full House of Representatives to vote on this bipartisan legislation."

This is sort of like twins and one being born before midnight and one being born after. I think the date that matters is the day president signs the legislation

Bush-Era Cuts

Tax cuts first enacted during George W. Bush's presidency expired last night. Obama and other Democrats have sought to extend the reductions for married couples' income up to $250,000 a year while letting tax rates rise for income above that amount. Republicans oppose tax rate increases for any income level.

Allowing the fiscal changes to take effect would cause a recession in the first half of 2013, according to the Congressional Budget Office.

If Congress does nothing, taxes will rise in 2013 by an average of $3,446 for U.S. households, according to the nonpartisan Tax Policy Center in Washington.

Tax filing for as many as two-thirds of U.S. taxpayers could be delayed into at least late March. Defense spending would be cut, and the economy would probably enter a recession in the first half of 2013, according to the CBO.

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Highlights of the agreement include:

—Income tax rates: Extends decade-old tax cuts on incomes up to $US400,000 for individuals, $US450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6 per cent, up from the current 35 per cent. Extends Clinton-era caps on itemised deductions and the phase-out of the personal exemption for individuals making more than $US250,000 and couples earning more than $US300,000.

—Estate tax: Estates would be taxed at a top rate of 40 per cent, with the first $US5 million in value exempted for individual estates and $US10 million for family estates. In 2012, such estates were subject to a top rate of 35 per cent.

—Capital gains, dividends: Taxes on capital gains and dividend income exceeding $US400,000 for individuals and $US450,000 for families would increase from 15 per cent to 20 per cent.

—Alternative minimum tax: Permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from being hit with higher tax bills averaging almost $US3000. The tax was originally designed to ensure that the wealthy did not avoid owing taxes by using loopholes.

—Other tax changes: Extends for five years Obama-sought expansions of the child tax credit, earned income tax credit, and an up to $2,500 tax credit for college tuition. Also extends for one year accelerated "bonus" depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.

—Unemployment benefits: Extends jobless benefits for the long-term unemployed for one year.

—Cuts in Medicare reimbursements to doctors: Blocks a 27 per cent cut in Medicare payments to doctors for one year. The cut is the product of an obsolete 1997 budget formula.

—Social Security payroll tax cut: Allows a 2 percentage point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2 per cent.

—Across-the-board cuts: Delays for two months $US109 billion worth of across-the-board spending cuts set to start striking the Pentagon and domestic agencies this week. Cost of $US24 billion is divided between spending cuts and new revenues from rules changes on converting traditional individual retirement accounts into Roth IRAs. AP